Osborne: Bank's misconduct risked UK's reputation

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Chancellor George Osborne has made a Commons statement on Barclays bank, which has been fined for manipulating the Libor interest rate, telling MPs that the bank's actions put confidence in the UK financial system at risk.

Barclays has been fined £290m by authorities in the UK and US for trying to manipulate the London Interbank Offered Rate, or Libor, which measures how much banks have to pay to borrow from their rivals and which influences the cost of loans and mortgages.

The Financial Services Authority (FSA) found that traders had lied to make the bank look more secure during the financial crisis of 2008, and is now looking into allegations of similar activities at other banks.

Addressing MPs on 28 June 2012, the chancellor described the Libor and the European Interbank Offered Rate (Euribor) as "the benchmark reference rates which are fundamental to the workings of the UK, European and international financial markets".

Quoting the FSA report, Mr Osborne said that in failing to observe "proper standards of market conduct", Barclays created the risk that "confidence in, or the stability of, the UK financial system would be threatened".

The chancellor alleged that the most serious breaches occurred in the two years prior to the financial crisis of 2008, and said the report "read like an epitaph to an age of irresponsibility".

He said the "tripartite" system of financial regulation - in which responsibility was divided between the Treasury, the Bank of England and the FSA - had "failed us in war and in peace" and told MPs the government's
Financial Services Bill
would toughen regulation.

Shadow Treasury minister Rachel Reeves described Barclays' actions as one of the worst examples of "irresponsible, predatory capitalism".

She asked what support would be available to customers and borrowers who had lost out and what would be done to stop such misconduct happening again.

Saying that Labour had previously raised concerns about Libor, she told MPs that the opposition would be "calling for the strongest punishment for those who have broken trust and broken the law".

Mr Osborne responded that the previous Labour government had failed to act, and created the FSA but did not give it powers extending to criminal sanctions.

Conservative MP Andrew Tyrie, who chairs the Commons Treasury committee, urged the chancellor to amend the Financial Services Bill to allow for criminal sanctions over "both derivatives and Libor".

Labour MP and former Chancellor Alistair Darling said: "We're kidding ourselves if we think this was the only country where this was going on."

The matter is also being investigated in the US, where the Department of Justice said criminal investigations into "other financial institutions and individuals is ongoing".

The penalties from the UK financial watchdog and US authorities followed "serious and widespread" misconduct, said the FSA.

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